Pound to Australian Dollar Unchanged

On Disappointing Retail Sales

Concerns in domestic economy meant a stable GBPAUD exchange rate: pound to Australian dollar unchanged, which contradicted the established trend of the Aussie dollar.

For people planning to emigrate to Australia, it is now more important than ever to talk to a foreign exchange professional.

Here are Peter's comments for this second week of February.

10.02.2012.

It seems concerns about the domestic economy in Australia have limited AUD strength again this past week! The GBPAUD exchange rate has been unusually stable. (For people that don't know, the established trend is for the Australian dollar to gain and gain against the pound, lifted on Chinese demand for Australian commodities.)

On the one hand Chinese demand remains strong, fuelling continued growth in Australian mining and exports. But on the other hand, there's a sense that a two-speed economy is developing in Australia, concerning a troubling domestic outlook.

Disappointing Retail Sales

For instance, retail sales in Australia declined -0.1% last week, beneath expectations for a +0.2% increase.

In part this reflects concerns regarding Europe.

The crisis in Greece has encouraged consumers to save rather than spend, while businesses hold off hiring.

This is because, of course, people prefer to be cautious so long as Europe might plunge the globe into a second recession!

However in addition, these disappointing retail sales reflect growing concern about the Australian economy itself.

Manufacturing Under Threat

For one, the rising dollar has made Australian manufacturing highly uncompetitive. It has become much more expensive to export Australian goods, prompting thousands of people in manufacturing to lose their jobs in the past 36 months. In this sense, though Chinese demand has been a boon for Australian, it has had unfortunate side effects too.

In addition, it is perhaps for this reason that this week Australian politicians have been at odds regarding helping manufacturing.

Prime Minister Julia Gillard for instance has pledged unlimited support for manufacturing firms. (This is a euphemism to suggest she'll pile endless public funds into manufacturing firms to prevent them going bankrupt.)

But on the other hand, opposition leader Tony Abbott has accused Ms. Gillard of exacerbating the problem. He argues that her proposed carbon tax (to come into effect in a few months) will add to pressure on Australian manufacturing, sending more firms out of business.

Higher And Higher?

Of course, regardless of who is right, it seems obvious this is a growing problem inside Australia. The question then is whether this might limit AUD strength in coming months, or whether Chinese demand will continue to push the dollar even higher regardless.